Multi Engines for Sustainable Income!
Chart of the Week:
U.S. Stocks Enter Super Earnings Season, Key Test for Market Momentum
U.S. equities have entered the Q4 “super earnings season,” with analysts raising S&P 500 EPS estimates by 0.5%. This stands out against the historical trend, as EPS forecasts averaged a 1.6% decline over the past five years and a 3.1% cut over the past decade. Among the 11 sectors, three saw upward EPS revisions: Technology (+6.1%), Financials (+1.2%), and Energy (+0.3%), with information technology companies issuing the largest number of positive profit outlooks. On the downside, Utilities posted the steepest earnings decline, followed by Healthcare and Consumer Staples, reflected in recent sector price performance.
Market Recap 1:
Soft Jobs Data, Rate Cut Bets Hold – Equities Extend Gains
U.S. nonfarm payrolls rose by 50,000 in December, below both November’s figure and market expectations of 73,000. However, the unemployment rate fell to 4.4%, better than the forecasted 4.5%, signaling a labor market that’s slowing but still resilient. December CPI rose 2.7% year-over-year, while core CPI came in at 2.6%, below the expected 2.7%, indicating inflation remains stable and manageable. Markets now price in over a 70% chance of a rate cut by June, fueling continued equity gains. European stocks hit new highs, led by defense and mining sectors. In Japan, Prime Minister Fumio Kishida is considering dissolving the lower house ahead of early February elections, while yen depreciation boosted Japanese equities. Taiwan and the U.S. reached a trade agreement, lowering tariffs from 20% to 15%, alongside a USD 500 billion investment commitment from Taiwan into the U.S., pushing the Taiwan stock index to record highs.
Market Recap 2:
Fed Independence Under Fire, Precious Metals Hit Record Highs
Federal Reserve Chair Jerome Powell disclosed that the U.S. Department of Justice has subpoenaed the Fed over budget overruns tied to headquarters renovations. Powell accused President Trump of leveraging criminal proceedings to push for rate cuts. Markets worry that a new Fed chair could align more closely with Trump’s agenda, downplaying inflation risks, and reducing Powell’s chances of remaining on the Board after May. Concerns over Fed policy independence rattled Treasury yields, while gold surged to a record USD 4,630 per ounce before retreating. Silver also rallied, with year‑to‑date gains exceeding 20%.
What’s Trending:
U.S. Non‑Tariff Inflation Declines Sharply, Fed Likely to Cut Rates Twice in 2026
U.S. CPI rose 2.7% year‑on‑year in December, in line with expectations, with monthly growth steady at 0.3%. Core CPI increased 2.6% year‑on‑year, below the forecast of 2.7%, while monthly core inflation came in at 0.2%, also under consensus. Housing inflation ticked up from 3.0% to 3.2%, and core goods inflation held at 1.4%, diverging from the broader disinflation trend, suggesting limited impact from the government shutdown.
In Focus 1:
Fed Rate Cuts and Capital Flows Favor Emerging Equities, Bonds, and Commodities – Best Mix Ahead
In 2025, under the unconventional Trump 2.0 policy environment — spanning interest rate policy, inflation pressures, geopolitical risks, and technological innovation — financial markets delivered unexpectedly strong performance, reshaping traditional asset allocation. With the Federal Reserve entering a rate‑cut cycle and Trump raising tariffs, doubts over the value of developed‑market currencies have fueled de‑dollarization. Precious metals surged, with gold assuming a quasi‑currency role and becoming a new defensive allocation in portfolios. For full‑year 2025, portfolios diversified across equities, bonds, gold, and alternative assets such as base metals achieved higher total returns, while the inclusion of gold even reduced overall volatility.
In Focus 2:
Multi-Asset Strategies Balance Risk and Return as Markets Stay Elevated
Emerging market equities and bonds are expected to perform strongly in 2026, supported by improving fundamentals, steady GDP growth around 5%, easing inflation, and room for rate cuts in some economies—creating a favorable environment for both equities and fixed income. EM USD bonds still offer yields of 5–6%, appealing to investors seeking stable cash flow. With the peak in new issuance behind us, tighter spreads are offset by reduced supply, reflecting improved credit risk. EM USD debt remains attractive as a satellite allocation to enhance income potential.
